Friday, October 1, 2010

October 2010 Stock Market Update

100 Year Dow Chart with 25-Year Moving Average

Dow 25 Year Moving Average

Above is a very long-term chart of the DJIA (Dow Jones Industrial Average), including the 25-year moving average (click chart to expand); it uses this past month's close for this year's close. It shows that the market rarely falls very far below its 25-year moving average.

In early March 2009, I posted Dow At 25-Year Moving Average. The Dow continued lower for several more days before bottoming at 6547 on March 9 -- very near the 25-year moving average at the time. Since then, the Dow is up 4241 points. If we treat the September 30 close of 10788 as the 2010 close, the moving average is now at 7297. (See the chart above. Click to expand.)

September was the best month of the year so far. The market was up 773 points (7.7%). In total, the third quarter was almost a mirror image of the second quarter -- the Dow gained 1014 points, or 10.4%, after losing a like amount in the second quarter. As a result, the Dow is again in positive territory for the year -- up 360 points (3.5%) year-to-date. Volatility remained moderate. The VIX, a measure of volatility, opened the month at 26, closed at 23.7, and spent most of the month between 22 and 24.

This bull market is now up almost 65% in a little less than 19 months. However, it is still 417 points (3.7%) shy of its April high close of 11205.

The Next 10 Years

My stock market projection model projects 10-year returns in the neighborhood of 5.5% as of the beginning of 2010. The market increase since then is such that forecast returns to the end of 2019 are essentially unchanged. As a result, I still expect that long-term returns from current levels are likely to be below average.

3 comments:

I've enjoyed reading your long-term perspective. Many thanks for all the useful info. I was wondering if you had an update for the Dow 25-yr moving average. Or perhaps if you had a resource where one might be able to find on a semi-regular basis. Regards,BDA

Since my historical data is yearly, I can only get an accurate read at end of year. Luckily, it changes very slowly. I use the spreadsheet linked to at the end of http://observationsandnotes.blogspot.com/2008/10/more-stock-market-history-and-worst.html to get approximations. Early in the year, I replace the prior year close with the most recent close. Late in the year, I replace the current year close with the most recent close.

If 2012 closes at the July close of 13009, the 25-year moving average will be 8184.